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Holiday let mortgages

Read our guide to find out more about the types of holiday home mortgages for your situation

gocompare author
Updated 05 August 2021  | 3 min read

What’s a holiday let mortgage?

You can use a holiday let mortgage to buy a holiday home that you plan to let out to tourists and visitors on a short-term basis.

This is different to having a mortgage for a second home which you plan to use yourself and not rent out.

With fluctuations in seasonal rental income, the criteria for taking out a holiday let mortgage can be stricter than a buy-to-let mortgage. But furnished holiday lets can allow you to claim tax relief on your mortgage payments.

Key points

  • The holiday home mortgage you need will depend on the intended use and whether it’s in the UK
  • Holiday-let mortgages in the UK are more of a niche product but they are readily available
  • Overseas mortgages are more complicated - you can go through a UK bank or a bank in the country where you’re purchasing

Are holiday lets a good investment?

Buying a property to rent out as a holiday let can provide you with an additional income as well as a welcome place to escape to. So, if you’re thinking of buying a holiday let, what are the pros and cons you should consider?

Pros:

  • There’s a potential for much higher rental income with the ability to charge more in peak seasons and school holidays
  • You should be able to deduct expenses and mortgage interest from your income from a fully furnished holiday home, reducing the amount of tax to pay. When you sell the home you may receive capital gains tax benefits through entrepreneurs’ relief
  • You can take advantage of being able to escape to your favourite spot, with minimal planning and cost, and use the holiday let when it’s not booked up
  • With a growing demand for UK holiday accommodation and uncertainty around overseas travel likely to continue, this could be a good time to invest

Cons:

  • To benefit from the holiday let tax advantages, you’ll need to make sure your property is available for letting 210 days a year, and actually let for 105 days
  • Property prices in tourist hotspots are high, which may limit the property options you can afford - although popular locations can deliver higher rental income
  • Interest rates on holiday let mortgages are typically higher. And if you already own another home, you’ll need to pay an additional 3% stamp duty surcharge
  • What you can charge for your property will vary depending on the time of year, and it may be empty for some time so you’ll need to be able make up the shortfall
  • Running a holiday let takes time and effort and you’ll have the added extra responsibility of organising and paying for things like utility bills and council tax, insurance, maintenance, and potentially the cost of using a holiday let management service

Am I eligible for a holiday let mortgage?

As with any mortgage, there are some criteria that you’ll need to meet before your holiday let mortgage is approved.

Depending on the lender, for most holiday let mortgages you’ll need:

  • A deposit of at least 25% of the property’s value
  • A minimum income of £20,000 to £40,000 per year, in addition to your rental income
  • A rental income from your holiday home that will cover your mortgage payments plus a safety margin of 25% to 45%
  • Insurance in place to cover any cancellations and loss of rental income

Because the rent you’ll receive will go up and down depending on the season and number of bookings, mortgage lenders see this type of property as having a greater risk so interest rates will be higher compared to residential mortgages.

Although the number of holiday let mortgages available can be limited, the increasing popularity of staycations means the range of lending options is growing for this market.

How is buying a holiday let property different to buying a residential buy-to-let?

The main difference between buying these two types of properties is that a buy-to-let will be used by long-term tenants, while a holiday let is usually rented for just a few days or weeks at a time and the rent is affected by holiday seasons. The type of mortgage you’ll need is also slightly different:

Buy-to-let mortgages

  • You can get a buy-to-let mortgage for up to 80% of the property’s value
  • Lenders use predicted rental income to work out exactly how much you can borrow
  • Properties generally need to be rented out for six to 12 months at a time to give the lender some guarantee of rent – this is called ‘assured shorthold tenancy’

Holiday let mortgages

  • Can get a holiday let mortgage for up to 75% of the property’s value
  • Lenders use average weekly rent across low, medium and high seasons
  • The maximum amount you can borrow could be capped, often around £500,000
  • How many holiday let mortgages you can have might be limited
  • The property must be fully furnished

Both types of mortgage are usually taken out on an interest-only basis.

How much deposit do I need?

The deposit you’ll need for a holiday let is likely to be higher than other types of mortgage.

The amount will depend on your individual circumstances, the lender, and what percentage of the property’s value (LTV) you’ll be borrowing.

A larger deposit will help you to access better mortgage deals.

To help you work out how much you can borrow, what your mortgage payments might be and how much deposit you’ll need, try our mortgage affordability calculator.

How do I apply?

For a holiday let mortgage application there are a few details you’ll need, like:

  • Your personal information, like your name, date of birth and address
  • Proof of your income and outgoings
  • Mortgage statement for your existing property
  • Property details and projected rental income for the holiday let
  • Statements for any other holiday let mortgages you have

Can I let my property on Airbnb?

This does really depend on which mortgage you have.

Some lenders don’t allow it, but there are now an increasing number of holiday let mortgages that are suitable for airbnb hosting.

You should check the details on your mortgage documents or speak to your provider to make sure.

Can I get a mortgage for more than one holiday let?

Some mortgage lenders will limit the number of holiday let properties you can have, with some saying you can only have one and others being more flexible.

Can I use the property as my own holiday home?

Yes, you can use your furnished holiday home yourself and still take advantage of the tax relief available, as long as the property is available to rent as holiday accommodation for at least 210 days of the year and is actually let for 105 of those days.

Can I get a holiday let mortgage for an overseas property?

Some of the major high street banks in the UK do offer mortgages overseas in countries where they have offices.

If you want to arrange a mortgage in a non-UK country where the property is based, you’ll need to use a specialist broker. Mortgage arrangements vary between countries but you may find you’ll need a higher deposit percentage than for a UK property.

You should be aware that if you’re borrowing in a foreign currency, fluctuations in the exchange rate will affect your repayments.

What alternatives are there to holiday home mortgages?

If you have enough funds, one option is to make a cash purchase. This means you won’t need to pay mortgage interest or fees and all the taxed rental income will be yours.

Remortgaging your home could release money to either increase the amount of deposit you can put down, or you may have enough equity in your home to buy your holiday-let without a mortgage.

Be aware that if you’re able to pay in full this way, you won’t be able to claim tax relief on the mortgage interest on your own home when calculating profits from your holiday let.

Alternatively, if you have most of the money you need to buy a holiday let you could take out a personal loan, typically available up to the value of £25,000, to pay for the rest.

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